This study shows how to use the Hierarchical DEA model to evaluate the operational efficiency of the manufacturing industry's production chain. We used nine TFT-LCD production chains in Taiwan with the data of 2001~2003 as example. Our model can distinguish the inefficiency between upstream and downstream firms, and the method combines two DMUs into one which allows managers to evaluate the relative inefficiency between industries. Furthermore, we show that if the TFT-LCD firm and LCD-monitor firm of one production chain were inefficient in the same part, it mean both of their fixed assets or human resource are relatively larger, then the production chain is inefficient. Almost all of the TFT-LCD firms and LCD-monitor firms of Taiwan's production chains were not suitable enough for each other in 2001~2003. It might be due to the fact that the managers of these firms ignored the efficiency of their production chain.
